(3.5 pts) The country described in the table below produces and consumes only th
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Question
(3.5 pts) The country described in the table below produces and consumes only three goods: energy drinks, pizza, and t-shirts. The quantity produced and price of each good in 2016 and 2017 are provided below.
(1 pt) Refer to the above table. Assuming that 2017 is the base year, compute the nominal and real GDPs for 2016 and 2017. Estimate the rate of growth of the real GDP between the twoyears.
(0.5 pt) Refer to the above table. Assuming that 2017 is the base year, compute the GDP deflator in 2016 and 2017. Estimate the inflation rate between the twoyears.
(1 pt) Assume the average consumer buys 10 t-shits, 6 cans of energy drinks, and 40 slices of pizza per year. Compute the consumer price index for 2016 and 2017, taking 2017 as the base year. Estimate the inflation rate between the twoyears.
(0.5 pt) Explain why the inflation you obtained in part b is different from theone you obtained in partc.
(0.5 pt) Alex's salary in 2017 was $50,000 and was increased that year to compensate for changes in the average consumer cost of living between 2016 and 2017. Compute Alex's original salary in2016.
2016 2017 Good t-shirts Energy drinks(cans) 600 Price $22 $1.50 $2.25 Quantity 170 600 1,100 Price $20 $2 $3 Quantity 150 Pizza (slices) 1,200Explanation / Answer
Real GDP in year 2017: 7900 ( this is the same as the nominal gdp in 2017 as the base year for computing real gdp is 2017)
Real GDP in year 2016: values of goods sold in 2016 at the base price of 2017: 7800
the nominal gdp for year 2016 is 6900
rate of growth of real GDP = Real GDP in 2017- Real GDP in 2016/(Real GDP in 2016)
=1.28%
inflation rate : is approximately 1.28%
10 t-shits, 6 cans of energy drinks, and 40 slices of pizza in year 2016 will cost 319
10 t-shits, 6 cans of energy drinks, and 40 slices of pizza in year 2017 will cost 332
CPI: (332/319 ) x100 = 104.07
inflation rate: 4.07%
the estimate for inflation is different from the value obtained earlier because this is calculated at the market price whereas earlier if was for real gdp. growth in nominal gdp can be attributed to or is the sum of the inflation rate and the growth in real gdp.
alex's orginal salary = 50000x 100/(104.07)
=48044.58
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